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Exposure to growth-oriented end markets is a key driver of successful M&A transactions, according to analysts from global investment bank Stout.

July 5, 2022

3 Min Read
M&A tiles on chessboard
Image courtesy of Alamy/Cagkan Sayin

Michael D. Benson and Chris Hannah

While some may be concerned about a potential recession — if one is not occurring already — the current state of capital markets and the availability of financing indicate that merger and acquisition (M&A) activity can continue for companies that are resilient and sustaining performance as expected.

At Stout, we have not yet seen an erosion in interest from buyers, but this is largely because of the individual company’s performance and exposure to growth-oriented end markets. M&A financing is readily available for sellers existing in attractive end markets that allow them to achieve their long-term growth projections.    

Leveraging our experience and industry research at Stout, we have seen several key trends relating to the plastics M&A market this quarter:

  • A company’s end market is critical. The state of a company’s major end market is a significant driver of M&A activity, and a buyer’s tolerance for risk is largely grounded in the cyclicality of that specific end market. Even within the current economic climate, a deal can remain highly energized and experience no erosion of value if the end market is one that buyers are actively attempting to access. The medical end market is a prime example, as it is generally resilient during times of recession and is currently providing attractive margin profiles to plastics manufacturers, resulting in increasing demand from buyers looking to enter that market.

  • Demand and supply are equalizing. The ratio of demand for M&A transactions to supply in 2022 has equalized, though a slight imbalance remains between the two, with more buyers than sellers, generally speaking. This contrasts with 2021, where an overheated, imbalanced M&A market existed as a result of pent-up demand from the previous year as well as sellers moving up their time to exit based on fears of a capital gains tax increase (which is still yet to happen).

  • Supply-chain issues remain. Supply-chain issues impacting the plastics industry have not completely resolved, and continued shortages and delays in resin supply have had some impact on predictability of top-line projections.

  • The value of well-branded customers. Stout recently advised on two major sell-side engagements in the plastics industry, and both transactions received interest in part because of their long-tenured relationships with large, multinational customers. This broad base of notable branded names, coupled with offering significant secondary value-add services, attracted many buyers seeking entrance into end markets that are traditionally difficult to access.

 

About the authors

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Michael D. Benson

Michael D. Benson is a Managing Director in Stout’s Investment Banking Group. He is responsible for the execution of investment banking transactions, which include mergers, acquisitions, divestitures, and the private placement of senior debt, subordinated debt, and equity securities.

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Chris Hannah

Chris Hannah is a Director in the Investment Banking Group. His investment banking experience includes mergers, acquisitions, leveraged buyouts, capital raising, and strategic advisory assignments for privately held, middle-market companies and publicly traded corporations.

Stout provides a full range of strategic alternatives including merger and acquisition (M&A) advice, private capital raising, financial sponsor coverage, and other financial advisory services to family-owned businesses, portfolio companies of private equity firms, and divisions of large corporations.

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